How to Apply for an IPO Under HNI Category?

Applying for an IPO under the High Net-Worth Individual (HNI) category is a specialised process that allows individuals with significant financial resources to participate in IPOs at a higher investment level. The HNI category comes with unique benefits and obligations, making it essential for potential investors to understand the process and requirements involved.

Definition of HNI

In the context of IPOs, an HNI (High Net-Worth Individual) refers to investors who apply for IPOs with a minimum investment amount exceeding ₹ 2 Lakhs. Unlike retail investors who are capped at this limit, HNIs can subscribe for much larger quantities, making their presence significant in the IPO process.

HNIs are typically classified under two categories:

1. Non-Institutional Investors (NIIs): These are individuals or entities applying for more than ₹ 2 Lakhs worth of shares but without institutional status.
2. Qualified Institutional Buyers (QIBs): This group includes banks, mutual funds, and other large financial institutions. However, HNIs fall under NIIs.

How to Apply for an IPO under the HNI Category?

Applying for an IPO under the HNI category requires you to follow a specific procedure, which differs from retail investors. Moreover, it may also vary across different brokers. To apply as an HNI in an IPO through m.Stock, here’s what you need to do:

1. Log in: Access your account via the web portal or the mobile app and navigate your way to the IPO section.
2. Choose the IPO: The first step is to identify the IPO that you wish to invest in. Study the company's prospectus, financials, and expected growth before making your decision.
3. Decide on Investment Size: Ensure that your investment is more than ₹ 2 Lakhs to qualify as an HNI. You should evaluate your financial capability before committing to the investment.
4. Open a Demat and Trading Account: You must have an active Demat and trading account with any broker who offers IPO services. Ensure your account is fully operational, and your funds are accessible.
5. Choose the ASBA (Application Supported by Blocked Amount) Method: HNIs must apply through the ASBA method, where the applied amount is blocked in your bank account until the shares are allocated.
6. Apply Through Your Broker: Select the IPO and fill out the necessary details, such as the number of shares you wish to apply for and the bid price. If you need any assistance, you can reach out to your broker’s customer care team to guide you through this process.
7. Await Allotment: As an HNI, the chances of share allotment are usually lower compared to retail investors due to the oversubscription of the HNI category in many IPOs. If allotted, the shares will be credited to your Demat account, and the corresponding funds will be debited.
8. Receive Refund if Unallotted: If you do not receive the shares, the blocked funds will be released back to your bank account.

Different Types of Investors in an IPO

An IPO involves various categories of investors, each having different levels of access and allotment priorities:

1. Retail Individual Investors (RIIs): These are investors who apply for up to ₹2 Lakhs worth of shares. Retail investors have a distinct reservation in most IPOs, giving them a higher chance of allotment.
2. High Net-Worth Individuals (HNIs): HNIs, as discussed, apply for shares exceeding ₹2 Lakhs. The HNI category is part of the Non-Institutional Investors (NII) pool and often experiences high competition due to large bids.
3. Qualified Institutional Buyers (QIBs): QIBs are large financial institutions such as banks, mutual funds, and insurance companies. They are given a substantial portion of shares in IPOs, but their applications are closely regulated.
4. Anchor Investors: A subset of QIBs, anchor investors commit to the IPO before it opens for the general public. Their investment helps establish confidence in the market.

Benefits of Applying as an HNI in an IPO 

1. Higher Investment Limit: HNIs can apply for large quantities of shares, potentially leading to more significant returns if the IPO performs well.
2. Exclusive Allotment Pool: The HNI category has its own reservation, separate from retail investors, which can provide more opportunities, though it’s often highly competitive.
3. Leveraging: HNIs can leverage their investments using margin funding, allowing them to apply for larger amounts than they may have in liquid assets.
4. Greater Flexibility: HNIs can choose between various IPO pricing strategies, such as bidding at the cut-off price or applying at the highest price band to increase their chances of allotment. 

Things to Consider Before Applying as an HNI in an IPO 

1. Funds Availability: Ensure that you have sufficient funds to cover your application. The ASBA method blocks the funds in your account until the IPO allotment is completed.
2. Oversubscription Risk: HNI applications often face oversubscription, meaning that you may receive fewer shares than applied for or none at all.
3. Market Volatility: IPOs can be volatile in the early days of trading. Be prepared for price fluctuations once the shares are listed.
4. Allocation Process: The allotment for HNIs is proportionate, meaning that even if you apply for a large number of shares, you may only get a fraction of what you bid for if the issue is oversubscribed.
5. Margin Funding Risks: If you’re using borrowed funds to apply, remember that margin funding comes with additional costs and risks, especially if the IPO underperforms.

Conclusion 

Applying for an IPO under the HNI category can be highly rewarding for individuals with significant financial resources. However, it requires thorough research, a solid financial plan, and an understanding of the risks involved. Ensure that you carefully consider your investment strategy and the dynamics of the IPO market before committing to an HNI application.